Nguyen Danh Cong – Partner
Nguyen Quang Thai – Junior Associate
On 12 August 2026, the Government issued Decree No. 318/2026/ND-CP detailing a number of articles of the Law on Recovery and Bankruptcy regarding non-application cases for derivative contracts containing netting clauses (“Decree 318”). Decree 318 takes effect from 12 August 2026, establishing a specific legal mechanism to prevent systemic risk, safeguard liquidity, and ensure financial market stability upon insolvency events.
Key highlights and notable points include:
1. Scope and Effective Application
- Scope of application: Decree 318 does not apply universally to general commercial, service, or credit contracts, but specifically applies within the scope of interest rate derivative contracts containing netting clauses (defined as agreements to set off reciprocal obligations to determine a single net amount)between enterprises or cooperatives and credit institutions or foreign bank branches.
- Application validity: For insolvency and bankruptcy proceedings that were accepted by the Court before 12 August 2026 but for which no bankruptcy declaration decision had been issued, Decree No. 318 permits the application of the provisions of this Decree. Where a bankruptcy declaration decision had already been issued before 12 August 2026, the Decree shall not apply retroactively to reconsider or resolve such case.
2. Secured Assets May Continue to Be Enforced Upon Opening of Bankruptcy Procedures by Courts
Under Decree 318, the enforcement of secured assets of an enterprise or cooperative for secured creditors in connection with interest rate derivative contracts with netting clauses is not suspended when the Court opens bankruptcy procedures. In other words, the principle of freezing all corporate assets upon the commencement of bankruptcy procedures is no longer absolute for this specific category of transactions. Secured creditors retain the right to continue enforcing secured assets.
However, creditors must still comply with a supervisory mechanism through information disclosure obligations. Specifically, upon request by the Liquidator, asset management and liquidation enterprise, or Judge, the creditor must clearly explain: (i) the grounds for not suspending the enforcement of secured assets; (ii) details of the secured assets being enforced; (iii) the commencement time of asset enforcement; and (iv) the location of asset enforcement.
3. Payments or Netting Executed Prior to Bankruptcy Are Not Automatically Deemed Void
As a general principle under Point c, Clause 1, Article 49 of the Law on Recovery and Bankruptcy, payment or set-off transactions carried out shortly before the issuance of a decision to commence bankruptcy proceedings are inherently subject to the risk of being declared invalid, in order to prevent the dissipation of assets or the granting of undue payment priority to certain creditors.
To protect the stability of financial transactions, Decree 318 establishes a specific exception: payments or netting of obligations under interest rate derivative contracts containing netting clauses executed within 06 months prior to the date of the Court’s decision opening bankruptcy procedures shall not be declared void.
This provision provides crucial legal protection for completed interest rate derivative transactions, eliminating the risk of transactions being unwound or reversed, and ensuring the efficacy of financial risk hedging instruments in the market.
4. Active Interest Rate Derivative Contracts Are Not Subject to Suspension or Termination
Decree 318 specifies that active interest rate derivative contracts containing netting clauses at the time the Court accepts the petition or issues a decision opening bankruptcy procedures shall not be suspended or terminated. This provision enables parties to maintain the contract status or exercise early termination and netting rights in accordance with the original agreement, preventing the contagion of liquidity risk across financial markets.
5. Exemption from Prior Reporting to Judges When Executing Netting of Obligations
After the Court has issued a decision to commence bankruptcy proceedings, instead of being required to comply with the reporting procedure and obtain the Judge’s approval before executing netting under Clause 1, Article 53 of the Law on Recovery and Bankruptcy, Decree 318 permits parties to interest rate derivative contracts with netting clauses to execute netting without prior reporting to the Judge.
However, it should be noted that such netting and exemption from prior reporting to the Judge apply solely to determine the net asset differential between the parties. The actual payment of this net differential must still strictly adhere to the provisions of laws on recovery and bankruptcy.
6. Key Recommendations
To proactively ensure compliance with Decree 318, enterprises and relevant financial institutions involved in interest rate derivative contracts should note the following:
- Thoroughly review the drafting and structure of netting clauses in existing interest rate derivative contracts to ensure compliance with the conditions required to benefit from this special mechanism.
- Credit institutions/Creditors should establish internal procedures to monitor and timely trigger enforcement mechanisms for secured assets when counterparties show signs of default, while preparing standardized templates, records, and explanatory documents to promptly provide upon request by Liquidator or Judges.
- Credit institutions/Creditors need to evaluate the legal status of counterparty enterprises currently undergoing insolvency proceedings (whether a decision declaring bankruptcy has been issued) to accurately apply the transitional provisions of Decree 318.
Overall, Decree No. 318/2026/ND-CP reflects a modern approach in bankruptcy law aligned with international financial standards. By creating a technical exception for interest rate derivative transactions, the Decree accurately reflects real risk exposure, prevents financial chain reactions, and maintains a harmonious balance with the general asset management objectives of bankruptcy procedures.
